Euro zone bailout fund could play role in future debt restructuring: ESM head

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BERLIN (Reuters) - The European Stability Mechanism (ESM) could play a role in debt restructuring in future, the head of the euro zone rescue fund said on Wednesday, adding that he was, however, skeptical about automatically extending debt maturities.

“That would be aimed at creating a reliable framework for debt restructuring negotiations with private creditors,” ESM head Klaus Regling said, according to the text of a speech he was due to deliver to the economic council of Chancellor Angela Merkel’s Christian Democrats (CDU) in Berlin.

He added that the ESM, which has experience on the issue of debt sustainability and is also very active in the market, could play the role of “neutral negotiation moderator”.

Regling said it was important to put the emphasis on the word negotiations “because I’m skeptical about the proposal of automatic maturity extensions”.

The German government believes that if a country asks for a bailout in future because it has lost market access, that country’s debt should be automatically restructured.

But others, like the highly indebted Italy, are strongly against that idea, saying that passing such a rule could create market panic and cause serious trouble for them now.

Regling said he feared the prospect of an automatic maturity extension could be procyclical and accelerate a crisis that could perhaps have been prevented otherwise.

He said the ESM could in future provide shorter-term loans with looser conditions to stabilize the economy.

Regling also said the ESM should be integrated into the European Treaty.

Turning to Greece, Regling said it would not need a debt haircut - or value reduction - and if Athens continued to implement reforms, it should be possible for Greece to regularly finance itself via the markets.